 Bartered
services are taxable
Tax Talk by George
Saenz • Bankrate.com
 Dear
Tax Talk,
I've worked for an advertising agency for a year
and a half as a graphic/Web designer. One of our clients was a LASIK
doctor. I did all of her Web site design as she was a client. In
late March 2003, I contacted her about getting my eyes done. My
employer was going to help with the cost. However, shortly thereafter,
the LASIK doctor fired the agency but said she would do the surgery
if I would continue to do her Web site and graphics on an "as
needed" basis.
She did the surgery and I kept a record on an Excel
spreadsheet of everything I did in exchange for the trade at the
agency as that's where I did her work. Everything on the spreadsheet
is noted and dated as to what she required, when she required it
and the time spent against the trade.
Neither the agency nor I ever received money as this
was a trade. I did receive, however, a 1099-MISC from her office
for $4,230 that I never received. Her husband is a CPA and obviously
expensed it so her business won't have to pay taxes on it. I, on
the other hand, have nothing to expense and was never self-employed.
How do I dispute this with the IRS? -- Lorrie
 Dear
Lorrie,
You don't have anything to dispute with the Internal Revenue Service.
When you exchange business services for something of value, you
realize a gain. Since you were not an employee of the doctor's LASIK
practice, she properly issued you a 1099-MISC
for the services provided. For the doctor, the tax treatment is
a wash. That is the doctor will realize income equal to the value
of the services received of $4,230 and deduct $4,230 for Web site
expenses for a net deduction of zero.
On your individual return, you'll file a Schedule
C or C-EZ and report $4,230 of self-employment income less any
related business expenses such as computer, telephone and travel
expenses.
The full $4,230 in LASIK surgery can be claimed with
other medical
expenses on Schedule A. Unfortunately though, you will end up
owing self-employment tax on the part of the 1099 that you could
not reduce by business expenses.
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